Sales volume, revenue and costs

Sales volume and sales revenue

• Sales volume: the number of units sold.
• Sales revenue (turnover) = selling price x sales volume.

Rearranged: sales volume = sales revenue / price, and price = revenue / volume. The January 2021 WBS12 paper asked for a sales volume calculated as revenue divided by price.

Costs

• Fixed costs do not change with output in the short run: rent, salaries, insurance, loan interest.
• Variable costs change directly with output: raw materials, packaging, piece-rate wages. Total variable cost = variable cost per unit x output.
• Total cost = fixed costs + total variable costs.
• Average (unit) cost = total cost / output.
• Profit = total revenue - total cost.

As output rises, average cost tends to fall because fixed costs are spread over more units.

Improving sales volume and revenue

• Volume: promotion, better distribution (new outlets, online), new markets, improved product quality or features, lower prices if demand is price elastic, better customer service and loyalty schemes.
• Revenue: raise volume, or raise price where demand is price inelastic (strong brand, few substitutes); sell higher-value versions (upselling), add complementary products.

Whether a price change raises revenue depends on price elasticity of demand (Unit 1): a price rise increases revenue only if demand is inelastic.

Worked example

A firm sells 4,000 units at $12. Fixed costs are $21,000 and variable cost is $5 per unit. Find revenue, total cost, average cost and profit.

1. Revenue = 12 x 4,000 = $48,000
2. Total variable cost = 5 x 4,000 = $20,000
3. Total cost = 21,000 + 20,000 = $41,000
4. Average cost = 41,000 / 4,000 = $10.25
5. Profit = 48,000 - 41,000 = $7,000

Answer: Revenue $48,000, total cost $41,000, average cost $10.25, profit $7,000

Check yourself

1. A business's sales revenue is $96,000 and its selling price is $16. Calculate sales volume.
   Show answer

   6000 units. 96,000 / 16 = 6,000 units.

2. Fixed costs are $18,000 and the variable cost is $7 per unit. Calculate total cost when 3,500 units are made.
   Show answer

   $42500. 18,000 + 7 x 3,500 = 18,000 + 24,500 = $42,500.

3. Total cost is $42,500 for 3,500 units. Calculate average cost per unit, to 2 decimal places.
   Show answer

   $12.14. 42,500 / 3,500 = $12.14.

4. A firm sells 2,400 units at $30. Fixed costs are $25,000 and variable cost is $14 per unit. Calculate profit.
   Show answer

   $13400. Revenue 72,000; total cost 25,000 + 33,600 = 58,600; profit = $13,400.

5. Price rises from $20 to $22 and sales volume falls from 5,000 to 4,700 units. Calculate the change in sales revenue.
   Show answer

   $3400. New revenue 103,400 - old revenue 100,000 = +$3,400.

6. Which is a fixed cost for a bakery?
   • Rent on the shop
   • Flour
   • Packaging for each loaf
   • Electricity used by the ovens per batch
   Show answer

   Rent on the shop. Rent does not change with the number of loaves.

7. A firm's product has price inelastic demand. To increase sales revenue it should
   • cut its price
   • keep its price and cut advertising
   • raise its price
   • stop selling online
   Show answer

   raise its price. Inelastic: quantity falls by a smaller % than price rises, so revenue rises.

8. Why does average cost usually fall as output rises?
   • Variable cost per unit always falls to zero
   • Revenue rises
   • Fixed costs fall
   • Fixed costs are spread over more units
   Show answer

   Fixed costs are spread over more units. The same fixed cost divided by more units gives a lower fixed cost per unit.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification (2018)
• Pearson Edexcel IAL Business WBS12 Unit 2 mark scheme, January 2021

Last updated 8 November 2026. Spotted a mistake? Tell us.